Lloyds Banking Group posts robust Q3 profits, revises asset quality ratio

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Lloyds Banking Group posts robust Q3 profits, revises asset quality ratio
Credit: © Reuters.

In the third quarter of 2023, Lloyds Banking Group (LON: LLOY ) PLC reported a significant increase in pretax profit to GBP1.86 billion, up from GBP576 million in the same period last year. This exceeded the consensus of GBP1.82 billion. The banking net interest margin also rose to 3.08% from 2.98% last year, albeit slightly below the anticipated 3.10%. However, top-line growth was slightly below expectations, with a modest 0.7% rise in net income to GBP4.51 billion against the GBP4.56 billion consensus, and net interest income at GBP3.44 billion slightly missed the GBP3.45 billion consensus.

The bank reported lower underlying impairment charges at GBP187 million compared to last year's GBP668 million. After excluding these charges, however, underlying profit declined by 5.1%. Despite this, CEO Charlie Nunn reaffirmed their 2023 guidance due to a robust performance in the first nine months of the year, driven by income growth, cost discipline and resilient asset quality.

In terms of customer deposits, loans and advances, the third quarter saw a decline, including a GBP2.8 billion reduction due to a GBP2.5 billion legacy portfolio exit. On the other hand, retail savings grew while retail current accounts reduced, wealth balances increased and overall balances rose by GBP1.4 billion.

Looking ahead, Lloyds aims for a banking net interest margin above 3.10% for the rest of 2023 and revised its asset quality ratio expectation to below 30 basis points.

Following these mixed results and those from Barclays (LON: BARC ) PLC, Lloyds' shares fell by 2%, with investors keeping an eye on the upcoming report from NatWest Group (LON: NWG ) PLC.

In other banking news, Deutsche Bank (ETR: DBKGn )'s Q3 2023 pre-tax profit rose by 7% YoY to €1.7 billion, marking its highest since Q3 2006. However, post-tax profit dropped by 3% to €1.2 billion due to a higher effective tax rate of 30%, influenced by geographical income mix. This tax increase, along with larger AT1 coupons and a total equity increase from organic capital generation, resulted in reduced post-tax RoTE (7.3%) and RoE (6.5%). The bank's cost/income ratio remained at 72%.

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